DISCLOSURE DEPARTMENT The Philippine Stock Exchange, Inc

20 December 2010

DISCLOSURE DEPARTMENT

The Philippine Stock Exchange, Inc.

4/F PSE Centre, Exchange Road,

Ortigas Center, Pasig City

Attention : JANET A. ENCARNACION

HEAD, Disclosure Department

Re : Definitive SEC 20-IS,

Special Stockholders� Meeting, RFM Corporation

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Dear Ms. Encarnacion,

In compliance with Section 20 of the Securities Regulation Code, please find

attached the Corporation�s Definitive Information Statement (SEC Form 20-IS) with

corresponding Management Report and Financial Statements.

Thank you.

Very truly yours,

ROWEL S. BARBA

Corporate Information Officer

VP, Head - Corporate Legal

& Human Resources Divisions

RFM CORPORATION

RFM Corporate Center, Pioneer corner Sheridan Streets, Mandaluyong City 1550, Metro Manila, Philippines Telephone: (63-2) 631-8101 Facsimile: (63-2) 632-0839 Website: www.rfmfoods.com

http://www.rfmfoods.com/

http://www.rfmfoods.com

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WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY

A. GENERAL INFORMATION Item 1. Date, Time and Place of Meeting of Security Holders (a) Date of Meeting: 27 January 2011

Time of Meeting: 11:00 a.m. Place of Meeting: RFM Corporate Center

Corner Pioneer and Sheridan Streets Mandaluyong City

Mailing Address: RFM Corporate Center Corner Pioneer and Sheridan Streets Mandaluyong City, Philippines 1550 (b) Approximate Date of Sending Information

Statement to Security Holders: 06 January 2010 Item 2. Dissenters' Right of Appraisal

The appraisal right may be exercised by any stockholder who shall have voted against (1) an amendment to the Articles of Incorporation that changes or restricts the rights of any stockholder or class of shares, or authorizes preferences in any respect superior to the outstanding shares of any class, or extends or shortens the corporate existence; (2) a sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets; or (3) a merger and consolidation; by making a written demand on the Corporation for payment of the fair value of his share(s). The written demand together with the share certificate/s of the withdrawing stockholder must be received by the Corporation within thirty (30) calendar days from the date on which the vote was taken. Failure to make the written demand and/or to surrender the share certificate/s within such period shall be deemed a waiver of the appraisal right.

If within a period of sixty (60) days from the date the corporate action was approved by the

stockholders, the withdrawing stockholder and the Corporation cannot agree on the fair value of the shares, it shall be determined and appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the Corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their award shall be paid by the Corporation within thirty (30) days after such award is made.

No payment shall be made to any withdrawing stockholder unless the Corporation has

unrestricted retained earnings in its books to cover such payment. Upon payment by the Corporation of the agreed or awarded price, the stockholders shall

forthwith transfer his shares to the Corporation.

The appraisal right is also available to a dissenting stockholder in case the Corporation decides to invest its funds in another corporation or business or for any purpose other than the primary purpose as provided in Section 42 of the Corporation Code.

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Item 3. Interest of Certain Persons In or Opposition to Matters to be Acted Upon Each of the incumbent Directors, Nominees for Directors or Officers of the Corporation since the beginning of the last fiscal year or any associate of said persons do not have any substantial interest, direct or indirect, by security holdings, or otherwise, in any matter to be acted upon other than election to the office. There is no Director who has informed the Corporation, either verbally or in writing, of his intention to oppose any action to be taken by the Corporation at the meeting. B. CONTROL AND COMPENSATION INFORMATION

Item 4. Voting Securities and Principal Holders Thereof

Stockholders of record of the Corporation as of 29 December 2010 shall be entitled to vote during the meeting. The outstanding capital stock of the Corporation as of 30 November 2010 is 3,160,403,866 common shares with a par value of Php1.00 per share, all of which are entitled to vote. For the purpose of voting the shares in the meeting, one common share is entitled to one vote.

Manner of Voting

Article 11 of the By-laws of the Corporation provides that the stockholders may vote in person or by proxy. In accordance with Section 24 of the Corporation Code of the Philippines, each stockholder may vote in any one of the following manner: 1. He may vote such number of shares for as many persons as there are Directors to be elected; 2. He may cumulate said shares and give one candidate as many votes as the number of Directors

to be elected multiplied by his shares; 3. He may distribute them on the same principle to as many candidates as he may see fit. In any of

these instances, the total number of votes cast by the stockholder should not exceed the number of shares owned by him as shown in the books of the Corporation multiplied by the total number of Directors to be elected.

Security Ownership of Certain Record and Beneficial Owners and Management (1) Security Ownership of Certain Record and Beneficial Owners

Security Ownership of Certain Record and Beneficial Owners as of 30 November 2010 of more than 5% of the Corporation's Voting Securities

(1) Title of Class

(2) Name & Address of Record Owner & Relationship to Issuer

(3) Name of Beneficial Owner & Relationship to Record Owner

(4) Citizenship

(5) No. of Shares

(6) Percentage (%)

Common PCD Nominee Corp. G/F MKSE Building Ayala Avenue, Makati

PCD Participants Filipino 722,008,878 22.845462

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Stockholder

Common Horizons Realty, Inc. 11 Kawayan Road N. Forbes Park, Makati City Stockholder

Horizons Realty, Inc.

Filipino 650,656,738 20.587772

Common Triple Eight Holdings, Inc. 18 Capinpin St., San Antonio, Pasig City Stockholder

Triple Eight Holdings, Inc.

Filipino 552,670,472 17.487337

Common BJS Dev. Corp. 1869 P. Domingo St. Makati City Stockholder

BJS Dev. Corp. Filipino 311,210,184 9.847165

Common Renaissance Property Management Corp. FEATI University Bldg. Carlos Palanca , Sta. Cruz Manila

Renaissance Property

Filipino 201, 982,966 6.391049

Based on the records of the Corporation, Mr. Jose Ma. A. Concepcion III is given the voting power over the security ownership of Triple Eight Holdings, Inc. and Horizons Realty, Inc., while Mr. Ernest Fritz Server or Mr. Joseph D. Server Jr. is given the voting power over the security ownership of BJS Development Corporation. Mr. Francisco A. Segovia is given the voting power over the security ownership of Renaissance Property Management Corp.

PCD Nominee Corporation is a wholly-owned subsidiary of Philippine Central Depository, Inc. and is the registered owner of the shares in the books of the Corporation's transfer agent, Securities Transfer Services, Inc. The beneficial owners of such shares are PCD's participants, who hold the shares on their behalf or in behalf of their clients. The Corporation is not aware that a participant holds more than 5% of outstanding common shares of the Corporation. PCD is a private corporation organized by the major institutions actively participating in the Philippine capital markets to implement an automated book-entry system of handling securities transactions in the Philippines.

(2) Security Ownership of Management

Security Ownership of Management as of 30 November 2010

(1) Title of Class

(2) Name of Beneficial Owner

(3) Nature of Beneficial Ownership

(4) Citizenship (5) No. of Shares (6) Percentage (%)

Common Jose S. Concepcion, Jr. Kawayan St., N. Forbes Park Makati City

�r� Filipino 1,917,568 0.060674

Common Jose Ma. A. Concepcion III Buendia St., N. Forbes Park Makati City

�r� Filipino 16,083,886 0.508919

Common John Marie A. Concepcion �r� Filipino 369,974 0.011707

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9 Urdaneta Ave., Urdaneta Village, Makati City

Common Ernest Fritz Server 319 Chico Drive, Ayala Alabang Village, Muntinlupa City

�r� Filipino 564,834 0.017872

Common Francisco A. Segovia 521 Acacia Ave., Ayala Alabang, Muntinlupa City

�r� Filipino 10 0.000000

Common Felicisimo M. Nacino, Jr. Unit A 354, Alexandra Condominiums, Pasig City

�r� Filipino 736,256 0.0232963

Common Joseph D. Server, Jr. 312 Cadena de Amor cor. Ilang-Ilang St., Ayala Alabang Village, Muntinlupa City

�r� Filipino 135,376 0.004284

Common Ma. Victoria Herminia C. Young Kawayan Road, N. Forbes Park, Makati City

�r� Filipino 10 0.000000

Common Raissa H. Posadas 11 Nakpil St., San Lorenzo Village, Makati City

�r� Filipino 2,000 0.000063

Common Romeo L. Bernardo 16/F Belvedere Tower San Miguel Ave., Ortigas Center, Pasig City

�r� Filipino 494 0.000016

Common Lilia R. Bautista 33 A Rita St., San Juan, Metro Manila

�r� Filipino 2,000 0.000063

Common Lauro B. Ramos Lot 23, Blk 23, Ponsettias St., La Colina Subd., Antipolo Valley Homes, Antipolo City

�r� Filipino 20,000 0.000633

N.A. Rowel S. Barba 73 Canterbury St., Hillsborough Village, Muntinlupa City

N.A. Filipino None N.A.

Common Norman P. Uy 18 Tacloban St., Alabang Hills, Muntinlupa City

�r� Filipino 920,208 0.029117

Common Raymond B. Azcarate Washington Tower Condominium, Pacific Ave., Marina Subd., Paranaque City

�r� Filipino 750 0.0000237

Common Ramon M. Lopez 4 Crocus Drive, Del-Nacia Village IV, Sauyo, Q.C.

�r� Filipino 598,282 0.0189306

Common Minerva C. Laforteza �r� Filipino 8,522 0.00027

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Blk. 9 Lot 17 Burbank St., North Fairview, Q.C.

N.A. Imelda J. Madarang 143 Don Rufino Ave., Tahanan Village, Paranaque City


Common Adolfo G. Alvarez 17 Rufino Hechanova St., West Executive , B.F. Homes International Village, Las Pinas City


Common Philip V. Prieto 15 Melon St., Valle Verde 1, Pasig City

�r� Filipino 122 0.000004

Common Francis Gregory H. Banzon 609 Batangas East, Ayala Alabang, Muntinlupa City

�r� Filipino 137,320 0.0043450

N.A. Susan A. Atienza 20 Yerba Santa Loop Verdana Homes, Daang Hari Molino 4, Bacoor, Cavite

N.A. Filipino N.A. N.A.

The total number of shares owned by the Directors and Executive Officers of the Corporation is 22,206,865 common shares. (3) Voting Trust Holders of 5% or More

To the extent known to the Corporation, there are no persons holding more than 5% or more of the Corporation�s stocks under a voting trust or similar agreement. (4) Changes in Control

No change in control of the Corporation has occurred since the beginning of its last fiscal year. Item 5. Directors and Executive Officers

No action will be taken with respect to the election of directors.

Item 6. Compensation of Directors and Executive Officers

No action will be taken with regard to any bonus, profit sharing or other compensation plan,

contract or arrangement in which any director, nominee for election as a director, or executive officer of the Corporation will participate; any pension or retirement plan in which any such person will participate; or the granting of extension to any such person of any option/s, warrant/s or rights/s to purchase any securities, other than warrants or rights issue to security holders as such, on a pro rata basis.

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Item 7. Independent Public Accountants The meeting does not relate to the election, approval or ratification of the Corporation�s accountant. Item 8. Compensation Plans No action will be taken with respect to any plan pursuant to which cash or non-cash compensation may be paid or distributed to the Corporations' officers and employees. Likewise, no action will be taken with regard to bonus, profit sharing, pension/retirement plan granting of extension of any option, warrant or right to purchase any securities. C. ISSUANCE AND EXCHANGE OF SECURITIES Item 9. Authorization or Issuance of Securities Other than for Exchange

a) Stockholders� approval will be sought for the authorization and issuance of up to 450 Million RFM Common Shares as subscription tranche of the equity fund raising of the Corporation.

b) The terms of the securities to be authorized, including dividend or interest rates, conversion prices, voting rights, redemption prices, maturity dates and similar matters will be determined by the Board of Directors.

c) The equity fund raising will consist in a placing and subscription transaction to be implemented in two concurrent stages comprising of (a) the offer and sale by existing shareholders of up to 450 million of their existing shares in the Corporation, at an offer price of up to the prevailing market price for the shares,; and (b) as part of the transaction, the subscription by the selling shareholders and the issuance by the Corporation to the selling shareholders, of unissued common shares at most in the same number as the shares sold during the offer, with such common shares (subscription tranche) being listed as soon as practicable thereafter. The net proceeds of the equity fund raising will be used for the expansion of the Corporation�s production facilities and working capital. No further authorization for the issuance of the securities by a vote of security holders will be solicited prior to such issuance.

d) The authorization and issuance of the common stock will not be in an exchange, merger, consolidation, acquisition nor similar transaction. The securities will be issued as part of a secondary public offering for cash.

The aforementioned placing and subscription transaction as well as the authority of the Board of

Directors to implement the placing and subscription transaction will also be submitted for approval by the stockholders of the Corporation during the stockholders� meeting scheduled on 27 January 2011 right after the Board meeting. Such authority of the Board of Directors includes the fixing of the offer price of up to the prevailing market price for the shares.

The subscription price of the new shares to be issued to the selling stockholders shall be

equivalent to the offer price of the shares to be offered for sale by the selling stockholders. The offer price may be adjusted to account for the expenses of the offer.

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Item 10. Modification or Exchange of Securities No action is to be taken with respect to the modification of any class of securities of the Corporation, or the issuance or authorization for issuance of one class of securities of the Corporation in exchange for outstanding securities of another class. Item 11. Financial and Other Information

Since the authorization or issuance of common stock is other than in an exchange, merger, acquisition or similar transaction, the information under this item is not required . Nonetheless, the Corporation�s interim financial statements for the nine-month period ending September 30, 2010 and the Management�s Discussion and Analysis are hereto attached. Items 12-14. Mergers, Consolidations, Acquisitions and Similar Matters, Acquisition or Disposition

of Property and Restatement of Accounts No actions are to be taken with respect to any mergers, acquisitions and similar matters; acquisition or disposition of any property nor restatement of any asset, capital or surplus account of the Corporation. D. OTHER MATTERS

Items 15. Action with Respect to Reports The minutes of the annual stockholders� meeting of the Corporation held on 08 July 2010 will be submitted to the stockholders for approval during the meeting on 27 January 2011.

Items 16-18. Matters Not Required to be Submitted, Amendment of Charter, By-laws or Other

Documents and Other Proposed Action Likewise, no actions are to be taken with respect to any matter which is not required to be submitted to a vote of security holders; any amendment of the Corporation�s Articles of Incorporation, By-Laws or other documents as to which information is not required above nor any matter not specifically referred to above. Item 19. Voting Procedures

Pursuant to the By-laws of the Corporation, in all regular and special stockholders� meetings, the presence of shareholders who represent a majority of the outstanding capital stock entitled to vote shall constitute a quorum and all decisions made by the majority shall be final. The method by which the votes of security holders will be counted is in accordance with the general provisions of the Corporation Code of the Philippines. The counting of votes will be done by the Corporate Secretary.

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PART III

SIGNATURE PAGE

After reasonable inquiry to the best of my knowledge and belief, I certify that the information set forth in this report is true, complete and correct. This report is signed in Mandaluyong City on 20 December 2010. RFM CORPORATION By: ATTY. ROWEL S. BARBA Corporate Secretary

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MANAGEMENT REPORT OF RFM CORPORATION

I. CONSOLIDATED FINANCIAL STATEMENTS The latest Interim Unaudited Financial Statements (Third Quarter Report) for 2010 is incorporated herein by reference and is filed as part of this Management Report. II. MANAGEMENT DISCUSSION AND ANALYSIS (MD &A) OR PLAN OF OPERATION Analysis of Results of Operations YTD September 2010 vs. YTD September 2009 Food and beverage firm RFM Corporation posted P523.6 million in net income as of September 2010, a 85% growth from P282.1 million for the same period last year. This income performance was attributed to the stream of successful product innovations in its branded businesses, backed by aggressive marketing campaigns. Revenues for the three quarters have reached P6.26 billion, representing 8.2% increase from the same period last year of P5.78 billion. Revenue growth is attributed to the stream of successful product innovations in their branded businesses, backed by aggressive marketing campaigns, especially in Fiesta pasta, and Selecta milk. Selecta ice cream alone posted over 40% sales growth that pulled-up the entire ice cream market category growth to 30%. This led to a more dominant market leadership position of 68% for Selecta, while competitors declined to 20 % and 7 % market shares, as of May 2010. Fiesta spaghetti, a pasta product of RFM, maintained its market leadership in the spaghetti market on account of its strength of its value-for-money proposition to consumers. The Company maintains optimism that the launch of an array of first-mover health beverage in the market will soon pay off for RFM. These include Vitwater (the first bottled water with functional benefits in the local market), Alo Youth and Alo Green Tea (the first ready-to-drink juice and tea with aloe vera mouthfeel), and the innovative Sunkist Healthy Heart orange juice (the first refreshing drink to reduce cholesterol levels). Third quarter 2010 vs. Third quarter 2009 Net income for the third quarter achieved P128.9 million, an increase of 13% over the same period in 2009, and an increase of 66.5% over that of the second quarter of this year. Group revenues continued to grow to P2.0 billion, up by 4% compared to last year�s P1.9 billion. This also represents a 2% growth from the second quarter, brought about by the better performance of its food and beverage business. Although the prices of major raw materials have softened, it has not declined to last year�s levels. Moreover, rising production costs and reduced the company�s margins to 30.4% in the third quarter of 2010, from 31.5% in the same quarter last year. Aggressive marketing campaigns and selling costs have dampened the Group�s net income by 12%, to P128.9 million, from P147.6 million of the same quarter last year.

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The key financial performance indicators for the Company for the six-month period ended September 30, 2010 as compared to the same period in 2009, as well as the third quarter of 2010 as compared with the third quarter of 2009, are as follows:

For the Quarter Ended For the Nine-Month Period Ended Key Financial Performance Indicators (Amounts in Millions)* Sept 30, 2010 Sept 30, 2009 Sept 30, 2010 Sept 30, 2009

Net Revenues P=2,011 P=1,931 P=6,256 P=5,782 Net Operating Margin 145 162 702 391 Net Income (Loss) 129 148 524 282 EBITDA 179 189 799 476 Current Ratio 1.62 1.54 1.62 1.54

* Except current ratio 1. Net Revenues

This is the barometer of the general demand for the Company�s products, reflecting their market acceptability vis-à-vis competition particularly in terms of quality, pricing, and image and perception, as well as availability of the products at the point of purchase market locations. This is of primary importance, and is regularly being monitored for appropriate action and/or improvement.

2. Net Operating Margin This shows the financial profitability of the primary products of the Company, after deducting the expenses related to their manufacture, distribution, and sale, as well as the general administrative costs in running the business.

3. Net Income This shows the over-all financial profitability of the Company, including the sale of primary and non-primary products and all other assets, after deducting all costs and expenses, interest expenses on debts and interest income on investments, as well as equity in net earnings or losses of associates.

4. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

This is a general yet reasonable representation of the cash generated by the Company from its current business operations that can then be made available for payment of loan interests, loan principal amortization, and taxes; and any further amount in excess becomes the Company�s cash profit.

5. Current Ratio

This determines the Company�s ability to meet its currently maturing obligations using its current resources.

Analysis of Financial Condition and Balance Sheet Accounts As of September 30, 2010, the Group�s total assets improved by 4% to P9.26 billion compared to December 31, 2009. The improvement was primarily from noncurrent assets segment which increased by 6% to P5.20 billion compared to the P4.90 billion from December 31, 2009. Total receivables have decreased 15% due to collection efforts to reduce the outstanding balances. Inventories increased by 20% to P1.52 billion as the Company took advantage of lower raw material prices and support the increasing sales in anticipation for the upcoming Christmas season. Other current assets

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increased by P161 Million to P248 Million due to deposits on purchases in line with inventory buildup to support the upward sales trend. The Group�s property plant and equipment increased by P300 million to P2.84 billion due to ongoing capacity expansion to meet the increasing demand of its products. Accounts payable have increased 24% due to the build up of the Company�s inventories in support of its increasing sales trend. Payments of trust receipts and acceptances payables decreased the account by P402 million to P132 million in September 2010. However, long-term bank debt remained at the same level as last year since reavailments were made after full payment of several outstanding bank loans. The Group maintained a healthy current ratio of 1.63 on September 30, 2010. The Group�s Debt to Equity ratio is 0.66 on September 30, 2010; and 0.75 on December 31, 2009. Notes to Financial Statements The Company�s financial statements for the third calendar quarter have been prepared in accordance with Philippine Financial Reporting Standards. The same accounting policies and methods of computation used are consistent with the most recent audited financial statements. The Company discloses the following: (a) There are no unusual items as to the nature and amount affecting assets, liabilities, equity, net

income, or cash flows, except those stated in Management�s Discussion and Analysis of Results of Operations and Financial Condition;.

(b) There are no material changes in estimates of amounts reported in prior financial periods, other than those disclosed in the most recent audited financial statements;

(c) Except as disclosed, there are no known trends, demand, commitments, events or uncertainties that may have an impact on sales and income from continuing operations;

(d) There are no issuances, repurchases and repayments of debt and equity securities other than mentioned;

(e) There are no known trends, demands, commitments, events or uncertainties that will have material impact on the Company�s liquidity nor have a favorable or unfavorable impact on revenues or income from continuing operations;

(f) There are no dividends paid separately for ordinary shares and other shares;

(g) There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements;

(h) Other than mentioned, there are no material changes in the business composition of the Company during the interim period, including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructuring, and discontinuing operations;

(i) There is no change in contingent liabilities since the most recent audited financial statements;

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(j) There were no known events that will trigger direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation that remain outstanding as of September 30, 2010;

(k) There were no material off-balance sheet transactions, arrangements, obligations, and other relationship of the Company with unconsolidated entities or other persons created during the reporting period.

PART II � OTHER INFORMATION The Corporation has no other pertinent information to disclose as of the end of the third quarter of the year.

RFM CORPORATION By:

ATTY. ROWEL S. BARBA Corporate Secretary

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COVER SHEET

R F M C O R P O R A T I O N A N D S U B S I D I A R I E S

(Company�s Full Name)

R F M C o r p o r a t e C e n t e r , P i o n e e r c o r n e r

S h e r i d a n S t r e e t s , M a n d a l u y o n g C i t y

(Business Address: No. Street City/Town/Province)

Ramon M. Lopez 631-8101 (Contact Person)

(Company Telephone Number)

1 2 3 1 1 7 � Q

Month Day (Form Type) Month Day (Calendar Year) (Annual Meeting)

Not Applicable

(Secondary License Type, If Applicable)

Not Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE (SRC) AND SRC RULE 17 (2) (b) THEREUNDER

1. For the quarterly period ended SEPTEMBER 30, 2010 2. Commission Identification Number: 12998 3. BIR Tax Identification Number: 000-064-134-000 4. Exact name of Registrant as specified in its charter: RFM CORPORATION 5. Philippines 6. (SEC Use Only) Province, country or other jurisdiction of Industry Classification Code incorporation or organization 7. RFM Corporate Center, Pioneer corner and Sheridan Streets, Mandaluyong City 1550 Address of Registrant�s principal office Postal Code 8. 0632-631-81-01 Registrant�s telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 4 and 8 of the RSA

Title of Each Class Number of Shares of Common Stock Issued and Outstanding

Common Stock, P=1.00 par value 3,160,403,866 11. Are any or all of these securities listed in the Philippine Stock Exchange? Yes [ ] No [ ] 12. Indicate by check mark whether the Registrant:

a. has filed all reports required to be filed by Section 11 of the Revised Securities Act (RSA) and RSA Rule 11(a)-1 thereunder and Sections 26 and 141 of the Corporation Code of the Philippines (CCP) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports): [Note: Sec. 26 of the CCP deals with reporting of election of directors or officers to the SEC; Sec. 141 with the submission of financial statements to the SEC.]

Yes [ ] No [ ]

b. has been subject to such filing requirements for the past 90 days.

Yes [ ] No [ ]

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PART I � FINANCIAL INFORMATION Item 1. Financial Statements The consolidated financial statements are filed as part of this form 17-Q, pages 7 to 29 and are incorporated herein by reference to said quarterly report. Item 2. Management�s Discussion and Analyses of Results of Operations and Financial Condition Analysis of Results of Operations YTD September 2010 vs. YTD September 2009 Food and beverage firm RFM Corporation posted P523.6 million in net income as of September 2010, a 85% growth from P282.1 million for the same period last year. This income performance was attributed to the stream of successful product innovations in its branded businesses, backed by aggressive marketing campaigns. Revenues for the three quarters have reached P6.26 billion, representing 8.2% increase from the same period last year of P5.78 billion. Revenue growth is attributed to the stream of successful product innovations in their branded businesses, backed by aggressive marketing campaigns, especially in Fiesta pasta, and Selecta milk. Selecta ice cream alone posted over 40% sales growth that pulled-up the entire ice cream market category growth to 30%. This led to a more dominant market leadership position of 68% for Selecta, while competitors declined to 20 % and 7 % market shares, as of May 2010. Fiesta spaghetti, a pasta product of RFM, maintained its market leadership in the spaghetti market on account of its strength of its value-for-money proposition to consumers. The Company maintains optimism that the launch of an array of first-mover health beverage in the market will soon pay off for RFM. These include Vitwater (the first bottled water with functional benefits in the local market), Alo Youth and Alo Green Tea (the first ready-to-drink juice and tea with aloe vera mouthfeel), and the innovative Sunkist Healthy Heart orange juice (the first refreshing drink to reduce cholesterol levels). Third quarter 2010 vs. Third quarter 2009 Net income for the third quarter achieved P128.9 million, an increase of 13% over the same period in 2009, and an increase of 66.5% over that of the second quarter of this year. Group revenues continued to grow to P2.0 billion, up by 4% compared to last year�s P1.9 billion. This also

represents a 2% growth from the second quarter, brought about by the better performance of its food and beverage business. Although the prices of major raw materials have softened, it has not declined to last year�s levels. Moreover, rising

production costs and reduced the company�s margins to 30.4% in the third quarter of 2010, from 31.5% in the same

quarter last year. Aggressive marketing campaigns and selling costs have dampened the Group�s net income by

12%, to P128.9 million, from P147.6 million of the same quarter last year.

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The key financial performance indicators for the Company for the six-month period ended September 30, 2010 as compared to the same period in 2009, as well as the third quarter of 2010 as compared with the third quarter of 2009, are as follows:

For the Quarter Ended For the Nine-Month Period Ended Key Financial Performance Indicators (Amounts in Millions)* Sept 30, 2010 Sept 30, 2009 Sept 30, 2010 Sept 30, 2009

Net Revenues P=2,011 P=1,931 P=6,256 P=5,782 Net Operating Margin 145 162 702 391 Net Income (Loss) 129 148 524 282 EBITDA 179 189 799 476 Current Ratio 1.62 1.54 1.62 1.54

* Except current ratio 6. Net Revenues

This is the barometer of the general demand for the Company�s products, reflecting their market acceptability

vis-à-vis competition particularly in terms of quality, pricing, and image and perception, as well as availability of the products at the point of purchase market locations. This is of primary importance, and is regularly being monitored for appropriate action and/or improvement.

7. Net Operating Margin This shows the financial profitability of the primary products of the Company, after deducting the expenses related to their manufacture, distribution, and sale, as well as the general administrative costs in running the business.

8. Net Income This shows the over-all financial profitability of the Company, including the sale of primary and non-primary products and all other assets, after deducting all costs and expenses, interest expenses on debts and interest income on investments, as well as equity in net earnings or losses of associates.

9. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

This is a general yet reasonable representation of the cash generated by the Company from its current business operations that can then be made available for payment of loan interests, loan principal amortization, and taxes; and any further amount in excess becomes the Company�s

cash profit. 10. Current Ratio

This determines the Company�s ability to meet its currently maturing obligations using its current resources.

Analysis of Financial Condition and Balance Sheet Accounts As of September 30, 2010, the Group�s total assets improved by 4% to P9.26 billion compared to December 31,

2009. The improvement was primarily from noncurrent assets segment which increased by 6% to P5.20 billion compared to the P4.90 billion from December 31, 2009. Total receivables have decreased 15% due to collection efforts to reduce the outstanding balances. Inventories increased by 20% to P1.52 billion as the Company took advantage of lower raw material prices and support the increasing sales in anticipation for the upcoming Christmas season. Other current assets increased by P161 Million to P248 Million due to deposits on purchases in line with inventory buildup to support the upward sales trend. The Group�s property plant and equipment increased by P300 million to P2.84 billion due to ongoing capacity

expansion to meet the increasing demand of its products.

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Accounts payable have increased 24% due to the build up of the Company�s inventories in support of its increasing sales trend. Payments of trust receipts and acceptances payables decreased the account by P402 million to P132 million in September 2010. However, long-term bank debt remained at the same level as last year since reavailments were made after full payment of several outstanding bank loans. The Group maintained a healthy current ratio of 1.63 on September 30, 2010. The Group�s Debt to Equity ratio is 0.66 on September 30, 2010; and 0.75 on December 31, 2009. Notes to Financial Statements The Company�s financial statements for the second calendar quarter have been prepared in accordance with Philippine Financial Reporting Standards. The same accounting policies and methods of computation used are consistent with the most recent audited financial statements. The Company discloses the following: (l) There are no unusual items as to the nature and amount affecting assets, liabilities, equity,

net income, or cash flows, except those stated in Management�s Discussion and Analysis of Results of Operations and Financial Condition;.

(m) There are no material changes in estimates of amounts reported in prior financial periods, other than those disclosed in the most recent audited financial statements;

(n) Except as disclosed, there are no known trends, demand, commitments, events or uncertainties that may have an impact on sales and income from continuing operations;

(o) There are no issuances, repurchases and repayments of debt and equity securities other than mentioned;

(p) There are no known trends, demands, commitments, events or uncertainties that will have material impact on the Company�s liquidity nor have a favorable or unfavorable impact on

revenues or income from continuing operations;

(q) There are no dividends paid separately for ordinary shares and other shares;

(r) There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements;

(s) Other than mentioned, there are no material changes in the business composition of the Company during the interim period, including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructuring, and discontinuing operations;

(t) There is no change in contingent liabilities since the most recent audited financial statements;

(u) There were no known events that will trigger direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation that remain

- 22 -

outstanding as of September 30, 2010;

(v) There were no material off-balance sheet transactions, arrangements, obligations, and other relationship of the Company with unconsolidated entities or other persons created during the reporting period.

PART II � OTHER INFORMATION The Company has no other pertinent information to disclose in this quarterly report.

- 23 -

IS-RFM CORPORATION Page 24 of 50

RFM CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (Amounts in Millions)

Unaudited Audited 30-Sep-10 31-Dec-09 ASSETS Current Assets Cash and cash equivalents 43 485 Accounts receivable � net (Note 4) 2,151 2,084 Inventories � net (Note 5) 1,526 1,274 Other current assets � net (Note 6) 348 187 Total Current Assets 4,068 4,030 Noncurrent Assets Property, plant and equipment � net 2,840 2,539 Investments � net 2,036 2,025 Other noncurrent assets � net 320 333 Total Noncurrent Assets 5,196 4,897 TOTAL ASSETS 9,264 8,927

LIABILITIES AND EQUITY Current Liabilities Bank loans 225 244 Accounts payable and accrued liabilities 1,944 1,681 Trust receipts and acceptances payable 132 535 Current portion of long-term debt 86 381 Advances from related parties 90 91 Other current liabilities 24 16 Total Current Liabilities 2,501 2,948 Noncurrent Liabilities Long-term debt � net of current portion 958 658 Other non-current liabilities 230 223 Total Noncurrent Liabilities 1,188 881 Total Liabilities 3,689 3,829

(Forward)


Unaudited Audited 30-Sep-10 31-Dec-09 Equity Equity Attributable to Equity Holders of the Parent Capital stock 3,160 3,160 Capital in excess of par value 789 789 Net unrealized gain on available-for-sale (AFS) financial assets 21 21 Revaluation increment on land � net of deferred income tax liability 501 501 Cash flow hedge (1) (1)Share-based compensation 2 2 Retained earnings 1,100 622 5,572 5,094 Minority Interests 3 4 Total Equity 5,575 5,098

TOTAL LIABILITIES AND EQUITY 9,264 8,927

See accompanying Notes to Unaudited Consolidated Financial Statements


RFM CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Millions, Except for Earnings Per Share Data)

For the Quarter

Ended September 30 For the Nine-Month Period

Ended September 30 2010 2009 2010 2009 NET REVENUES P=2,011 P=1,931 P=6,256 P=5,782 DIRECT COSTS AND EXPENSES 1,383 1,321 4,017 4,145 GROSS PROFIT 628 610 2,239 1,637 SELLING AND MARKETING EXPENSES (401) (312) (1,254) (948) GENERAL AND ADMINISTRATIVE EXPENSES (102) (98) (336) (276) MISCELLANEOUS OPERATING INCOME (LOSS) 20 (38) 53 (22) NET OPERATING INCOME 145 162 702 391 OTHER INCOME (CHARGES) � Net (Note 9) 17 13 (34) (29) INCOME BEFORE PROVISION FOR INCOME TAX 162 175 668 362 PROVISION FOR INCOME TAX 33 27 144 80 NET INCOME P=129 P=148 P=524 P=282

Attributable to:

Equity holders of the Parent Company P=129 P=148 P= 525 P= 282 Minority interests (Note 2) � � (1) �

P=129 P=148 P= 524 P= 282 Basic/Diluted Earnings Per Share (Note 9) P=0.041 P=0.047 P= 0.166 P= 0.089




UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Millions)

For the Quarter

Ended September 30 For the Nine-Month Period

Ended September 30 2010 2009 2010 2009 NET INCOME P=129 P=148 P=524 P=282 OTHER COMPREHENSIVE INCOME Net valuation gain (loss) on AFS investments 6 - 3 5 Total comprehensive income for the period P=135 P=148 P=527 P=287

Attributable to:

Equity holders of the Parent Company P=129 P=148 P= 525 P= 282 Minority interests (Note 2) � � (1) �

P=129 P=148 P= 524 P= 282



RFM CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in Millions)

Attributable to Equity Holders of the Parent

Capital Stock

Capital In Excess of Par Value

Net Unrealized

Gain on AFS

Financial Assets

Revaluation Increment �

Net of Deferred

Income Tax Liability

Cash Flow Hedge

Share-Based

Compen-sation

Retained Earnings

Treasury Stock Total

Minority Interests

Total Equity

BALANCES AT DECEMBER 31, 2008 P=3,160 P=789 P=17 P=501 P=- P=4 P=435 (P=4) P=4,902 P=3 P=4,905 Total comprehensive income for the period � � � � � � 287 � 287 287 Property dividend declaration � � � � � � (116) � (116) � (116) Cash dividend declaration � � � � � � (50) � (50) � (50)

BALANCES AT SEPTEMBER 30, 2009 P=3,160 P=789 P=17 P=501 P=- P=4 P=556 (P=4) P=5,023 P=3 P=5,026 Total comprehensive income � � 4 � (1) � 67 � 70 1 71 Share-based compensation plan � � � � � (2) - � (2) - (2) Reissuance of treasury stock � - � � � � � 4 4 - 4

BALANCES AT DECEMBER 31, 2009 P=3,160 789 21 501 (1) 2 623 � 5,095 4 5,099 Total comprehensive income � � � � � � 527 � 527 4 531 Cash dividend declaration � � � � � � (50) � (50) � (50) Dividends of minority interests � � � � � � - � � (5) (5)

BALANCES AT SEPTEMBER 30, 2010 P=3,160 P=789 P=21 P=501 (P=1) P=2 P=1,100 P=� P=5,572 P=3 P=5,445


RFM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions)

For the Nine Month Period Ended September 30 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=668 P=187 Adjustments for: Interest expense and financing charges 88 119 Depreciation and amortization 97 60 Unrealized foreign exchange gains - net 1 (16) Equity in net losses (earnings) of associates - (10) Interest and financing income (25) (34)Operating income (loss) before working capital changes 829 306 Decrease (increase) in: Accounts receivable and installment contracts receivables 187 506 Inventories (252) (129) Other current assets (161) (80)Increase (decrease) in: Accounts payable and accrued liabilities 382 (6) Trust receipts and acceptances payable (403) (161) Other current liabilities (109) � Provision for doubtful accounts 40 13 Cash generated from (used in) operations 513 449 Interest paid (88) (119)Interest received 25 34 Net cash from (used in) operating activities 450 364 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investments and property and equipment (849) (165)Proceeds from sale of investment property and property plant and equipment � � Increase in other noncurrent assets 12 (54)Dividends received 1 � Net cash used in investing activities (836) (219) CASH FLOWS FROM FINANCING ACTIVITIES Availments of long-term debt obligations / bank loans 780 76 Net repayments of long-term debt and obligations / bank loans (795) (270)Dividends paid (50) (25)Increase (decrease) in minority interests and other noncurrent liabilities 8 (15)Net cash from financing activities (57) (234) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (443) (89) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 486 515 CASH AND CASH EQUIVALENTS AT END OF YEAR P= 43 P= 426

See accompanying Notes to Consolidated Financial Statements


RFM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information

RFM Corporation (the Parent Company) is incorporated in the Philippines. The Parent Company is a public company under Section 17.2 of the Securities Regulation Code and its shares are listed in the Philippine Stock Exchange (PSE). The Parent Company is mainly involved in the manufacturing, processing and selling of wheat, flour and flour products, pasta, meat, milk, juices, margarine, and other food and beverage products. The Parent Company and its Subsidiaries are collectively referred to as the Group. The registered office address of the Parent Company is RFM Corporate Center, Pioneer corner Sheridan Streets, Mandaluyong City.

2. Summary of Significant Accounting and Financial Reporting Policies

The consolidated financial statements of the Group have been prepared using the historical cost basis, except for the Group�s land, which are stated at appraised value, and available-for-sale (AFS) investments and derivative liability that are measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Parent Company�s functional currency. All values are rounded off to the nearest thousand pesos (P=000), except for the number of shares or when otherwise indicated. Statement of Compliance The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group prepared for the same reporting year as the Parent Company, using consistent accounting policies. The consolidated subsidiaries, which are all incorporated in the Philippines, follow:

Percentage of Ownership 2010 2009 Cabuyao Meat Processing Corporation 100.00 100.00 Interbake Commissary Corporation (ICC) 100.00 100.00 RFM Equities, Inc. 100.00 100.00 RFM Insurance Brokers, Inc. (RIBI) 100.00 100.00 Conglomerate Securities and Financing Corporation (CSFC)

88.68

88.68

RFM Foods Philippines Corporation* 100.00 100.00 Southstar Bottled Water Company, Inc.* 100.00 100.00 Swift Tuna Corporation* 100.00 100.00 FWBC Holdings, Inc. 83.38 83.38 Filipinas Water Bottling Company, Inc. (FWBC) 58.37 58.37 Rizal Lighterage Corporation (RLC) 82.98 82.98 RFM Canning and Marketing, Inc. (RFM Canning)* 70.00 70.00 WS Holdings, Inc. (WHI) 60.00 60.00

* Dormant All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full in consolidation. However, intra-group losses that indicate impairment are recognized in the consolidated financial statements.


Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of the subsidiary so as to benefit from its activities. Consolidation of subsidiaries ceases when control is transferred out of the Group. Minority interests represent the portion of income and expense and net assets in CSFC, FWBC, RLC, RFM Canning and WHI not held by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from the equity attributable to equity holders of the Parent Company.

Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following new and amended PFRSs and Philippine Interpretations effective beginning January 1, 2010: Amendments to PFRS 2, Share-based payments - Group Cash-settled Share-based Payment Transactions,

clarify the scope and the accounting for group cash-settled share-based payment transactions. Revised PFRS 3, Business Combinations, and PAS 27, Consolidated and Separate Financial Statements,

introduce a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results. The revised PAS 27 requires, among others, that (a) change in ownership interests of a subsidiary (that do not result in loss of control) will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated between the controlling and noncontrolling interests (previously referred to as �minority interests�); even if the losses exceed the noncontrolling equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any retained interest will be remeasured to fair value and this will impact the gain or loss recognized on disposal. The changes introduced by the revised PFRS 3 must be applied prospectively and PAS 27, retrospectively with few exceptions.

Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items,

addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item.

Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners, provides guidance on how

to account for non-cash distributions to owners. The interpretation clarifies when to recognize a liability, how to measure it and the associated assets, and when to derecognize the asset and liability.

Improvements to PFRS The Financial Reporting Standards Council approved in its meeting in May 2009 the adoption of Improvements to IFRS issued by IASB in April 2009 effective in 2010, unless otherwise stated. PFRS 2, Share-based Payment, clarifies that the contribution of a business on formation of a joint venture

and combinations under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3. The amendment is effective for financial years on or after July 1, 2009.


PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, clarifies that the disclosure required in respect of noncurrent assets or disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRS only apply if specifically required for such noncurrent assets or discontinued operations.

PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported when

those assets and liabilities are included in measures that are used by the chief operating decision maker. PAS 1, Presentation of Financial Statements, clarifies that the terms of a liability that could result, at

anytime, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification.

PAS 7, Statement of Cash Flows, explicitly states that only expenditure that results in a recognized asset

can be classified as a cash flow from investing activities.

PAS 17, Leases, removes the specific guidance on classifying land as lease so that only the general guidance remains. Prior to the amendment, leases of land were classified as operating leases. The amendment now requires that leases of land are classified as either �finance� or �operating� in accordance

with the agreed principles of PAS 17. The amendment will be applied retrospectively. PAS 36, Impairment of Assets, clarifies that the largest unit permitted for allocating goodwill acquired in

a business combination is the operating segment, as defined in PFRS 8 before aggregation for reporting purposes.

PAS 38, Intangible Assets, clarifies that if an intangible asset acquired in a business combination is

identifiable only with another intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar useful lives.

It also clarifies that the valuation techniques presented for determining the fair value of intangible assets

acquired in a business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used.

PAS 39, Financial Instruments: Recognition and Measurement, clarifies that a prepayment option is

considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.

The amendment also clarifies that the scope exemption for contracts between an acquirer and a vendor in

a business combination to buy or sell an acquiree at a future date, applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken.

It also clarifies that gains or losses on cash flow hedges of a forecast transaction that subsequently results

in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss.

Philippine Interpretations IFRIC 9, Reassessment of Embedded Derivatives, clarifies that it does not apply

to possible reassessment, at the date of acquisition, to embedded derivatives in contracts acquired in a combination between entities or businesses under common control or the formation of a joint venture.

Philippine Interpretations IFRIC 16, Hedges of a Net Investment in a Foreign Operation, states that in a

hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied.


Future Changes in Accounting Policies The Group will adopt the following revised PFRS, amendment to PAS and Philippine Interpretations when these become effective, and as these become applicable. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS, PAS and Philippine Interpretations to have significant impact on the Group�s financial statements.

Effective in 2012 Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate, covers accounting for

revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as a construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.

3. Management�s Use of Significant Accounting Judgments and Estimates

The preparation of the Group�s consolidated financial statements requires management to make judgments and

estimates that affect the amounts reported and the disclosures made. The estimates and assumptions used in the consolidated financial statements are based upon management�s evaluation of relevant facts and circumstances

as of the date of the financial statements. Actual results could differ from these estimates, and such estimates will be adjusted accordingly, when the effects become determinable.

Judgments In the process of applying the Group�s accounting policies, management has made the following judgments

apart from those involving estimations, which have the most significant effect in the amounts recognized in the consolidated financial statements: Classification of financial instruments Impairment of AFS investments Provisions Determination of the classification of leases

Estimates The key assumptions concerning the future and other key sources of estimation at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amount of asset and liabilities within the next financial year are:. Determination of fair value of financial instruments Valuation of land under revaluation basis Estimation of allowance for doubtful accounts Estimation of allowance for probable losses Estimation of inventory obsolescence Estimation of net realizable value of inventories Estimation of useful lives of property, plant and equipment Determination of impairment of non-financial assets Recognition of deferred income tax assets Estimation of pension benefits obligations and costs Use of effective interest rate


4. Segment Information

The primary segment reporting format is determined to be the Group�s operating business segments. The

Group is organized into the following operating business segments, namely: (1) flour based products, (2) beverage and meat products , and (3) service and others. The flour-based segment manufactures and sells flour, pasta, bakery and other bakery products. The beverage and meat segment manufactures and sells meat, fats and oil, and milk and juices. Others consist of insurance, financing, lighterage moving, cargo handling, ice cream manufacturing and other services. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories and property, plant and equipment, net of allowance and provisions. Segment liabilities include all operating liabilities and consist principally of trade, wages and taxes currently payable and accrued liabilities.

Intersegment transactions, i.e. segment revenues, segment expenses and segment results, include transfers between business segments. Those transfers are eliminated in consolidation. Information with regard to the Group�s significant business segments is as follows (amounts in millions):

For the Nine-Month Period Ended September 30, 2010 Flour-Based

Beverage and Meat

Service and Others Eliminations Consolidated

Net sales External sales P=2,871 P=1,354 P=2,031 P=� P=6,256 Intersegment sales � � 20 (20) � P=2,871 P=1,354 P=2,051 (P=10) P=6,256 Results Income (loss) from operations P=580 (P=195) P=347 (P=30) P=702 Other income (charges) - net (34) Provision for income tax (144) Net income 524 Other information Segment assets P=5,207 P=4,550 P=6,254 (P=8,783) P=7,228 Investments � � 2,665 (629) 2,036 Consolidated Total Assets P=5,207 P=4,550 P=8,919 (P=9,412) P=9,264 Consolidated Total Liabilities P=3,690 Depreciation and amortization P=97


For the Nine-Month Period Ended September 30, 2009

Flour-Based

Beverage and Meat


Net sales External sales P=3,063 P=1,373 P=1,346 P=� P=5,782 Intersegment sales � � 26 (26) � P=3,063 P=1,373 P=1,372 (P=26) P=5,782 Results Income (loss) from operations P=332 (P=147) P=216 (P=10) P=391 Other income (charges) - net (29) Provision for income tax 80 Net income 282 Other information Segment assets P=5,562 P=3,576 P=4,479 (P=8,154) P=5,463 Investments 2,175 Consolidated Total Assets P= 8,786 Consolidated Total Liabilities P= 3,760 Depreciation and amortization P= 86

For the Quarter Ended September 30, 2010 Flour-Based

Beverage and Meat


Net sales External sales P=999 P=459 P=553 P=� P=2,011 Intersegment sales � 10 (10) � P=999 P=459 P=563 (P=4) P=2,011 Results Income (loss) from operations P=102 (P=115) P=168 (P=10) P=145 Other income (charges) - net 17 Provision for income tax (33) Net income 129 Other information Segment assets P=5,207 P=4,550 P=6,254 (P=8,783) P=7,228 Investments � � 2,665 (629) 2,036 Consolidated Total Assets P=5,207 P=4,550 P=8,919 (P=9,412) P=9,264 Consolidated Total Liabilities P=3,690 Depreciation and amortization P= 34


For the Quarter Ended September 30, 2009

Flour-Based

Beverage and Meat


Net sales External sales P=1,003 P=485 P=443 P=� P=1,931 Intersegment sales � � (27) 27 � P=1,003 P=485 P=416 P=27 P=1,931 Results Income (loss) from operations P=97 (P=67) P=139 (P=7) P=162 Other income (charges) - net 13 Provision for income tax 27 Net income 148

Other information Segment assets P=5,562 P=3,576 P=4,479 (P=8,154) P=5,463 Investments 2,175 Consolidated Total Assets P= 8,786 Consolidated Total Liabilities P= 3,760 Depreciation and amortization P=27

5. Receivables

September 30, 2010(Unaudited)

(amounts in millions) Trade receivables P=1,885 P=1,783 Advances to related parties 604 623


Other receivables 229 245 2,718 2,651 Less allowance for doubtful accounts 567 567 P=2,151 P=2,084

6. Inventories

This include finished goods and goods in process, raw materials, and spare parts and supplies.

7. Other Current Assets


(amounts in millions) Deposits on purchases P=146 P=63 Creditable withholding taxes 101 69 Current portion of receivable from Meralco � net of deferred

interest income 3 9 Prepaid expenses and other current assets � net of allowance for

probable losses 98 46 P=348 P=187


8. Equity

Capital Stock The details of the Parent Company�s capital stock follows:

Number of Shares


Common stock - P=1 par value Authorized

Beginning of period 3,978,265,025 3,978,265,025 Retirement of treasury stock � � Conversion to common stock � �

End of period 3,978,265,025 3,978,265,025

Issued and outstanding 3,160,403,866 3,160,403,866 Issued and outstanding common shares are held by 3,648 stockholders as of September 30, 2010 and December 31, 2009. Retained Earnings On April 2010, the BOD approved the declaration of cash dividend amounting to P=49.28 million to the Parent Company�s stockholders as of May 14, 2010. On April 29, 2009, the BOD approved the declaration of cash dividends amounting to P=25.00 million to its stockholders as of May 14, 2009, and the issuance of property dividends consisting of 33,265,912 common


shares of Philtown at P=3.49 per share. Stockholders as of record date owning 95 shares were entitled to one Philtown share. No fractional shares have been issued. On August 26, 2009, the BOD approved the declaration of cash dividend amounting to P=24.99 million to the Parent Company�s stockholders as of September 25, 2009. The Parent Company�s retained earnings as of December 31, 2009 is restricted to the extent of the amount of the undistributed equity in net earnings of subsidiaries, joint ventures and associates included in its retained earnings amounting to P=223.93 million. These will only be available for declaration as dividends when these are actually received. In addition, retained earnings is restricted to cumulative actuarial gains on defined benefits plans, which are presented as part of �Retained earnings� account, amounting to P=53.61 million as of March 31, 2010 and December 31, 2009.

9. Related Party Transactions Significant related party transactions are as follows: Transactions with the Group a. Sales and purchases of products and services to/from subsidiaries.


b. The Parent Company entered into a management agreement with ICC under which the Parent Company shall receive from ICC a monthly fee of P=0.30 million from January 1, 2009. On October 1, 2009, the monthly fee increased from P=0.30 million to P=1.00 million. In addition, ICC leases production and warehouse from the Parent Company for its manufacturing operations and warehousing of its raw materials and finished goods.

c. The Parent Company utilizes RLC for its lighterage requirements. d. Availments/extensions of both interest-bearing and noninterest-bearing cash advances mainly for working

capital purposes and investment activities from/to subsidiaries and other related parties with no fixed repayment terms. Advances to a subsidiary are subject to annual interest of 9% on the monthly outstanding balance.

e. Distributorship services provided by the Parent Company to URICI, a joint venture entity, for the export of

frozen dairy dessert/mellorine. URICI pays service fees equivalent to 7% of the total net sales value of goods distributed.

f. Management services of the Parent Company to RIBI, a majority-owned subsidiary wherein RIBI pays the

Parent Company a yearly management fee equivalent to 5% of income before tax or a fixed amount based on the level of net sales, whichever is higher.

g. Lease of certain warehouse and office spaces by the Parent Company and other subsidiaries from Invest

Asia with automatic renewal every year unless terminated by the lessee.

Material intercompany transactions and outstanding balances of the Group were eliminated in the consolidated financial statements.

10. Financial Instruments

Date of recognition The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. Purchases and sales of financial assets that require delivery of assets within the time frame by regulation or convention in the marketplace are recognized on the settlement date. Initial recognition and classification of financial instruments All financial assets and financial liabilities are recognized initially at fair value. Except for securities at fair value through profit and loss (FVPL), the initial measurement of financial assets includes any transactions costs. The Group�s financial assets are further classified into the following categories: financial assets at FVPL, loans

and receivables, held-to-maturity (HTM) investments, and AFS investments or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group also classifies its financial liabilities as financial liabilities at FVPL and other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The classification depends on the purpose for which the investments were acquired or whether they are quoted in an active market. The Group determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at each financial year-end. Financial instruments are classified as liability or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. As of September 31, 2010 and December 31, 2009, the Group has no financial assets and financial liabilities at FVPL and HTM investments.


Determination of fair value The fair value of financial instruments traded in active markets at the balance sheet date is based on the quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of current fair value as long as there has not been a significant change in economic circumstances since the time of transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

Day 1 difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the consolidated statement of income unless it qualifies for the recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 difference amount.

Loans and receivables

Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. After initial measurement, loans and receivables are subsequently carried at cost or amortized cost using the effective interest method less any allowance for impairment. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are classified as current assets if maturity is within 12 months from the balance sheet date. Otherwise, these are classified as noncurrent assets. This category primarily includes the Group�s cash in banks and cash equivalents, trade receivables, advances to related parties, other receivables and receivable from Manila Electric Company (Meralco) as of September 30, 2010 and December 31, 2009.

AFS investments AFS investments are nonderivative financial assets that are either designated in this category or not classified in any of the other categories. AFS investments are carried at fair value in the consolidated balance sheet, with the unrealized gains or losses on changes in their fair value being recognized directly in the other comprehensive income. When the financial asset is disposed of, the cumulative gain or loss previously recorded in other comprehensive income is recognized in the consolidated statement of income. Interest earned or paid on the investments is reported as interest income or expense using the effective interest method. Dividends earned on financial assets are recognized in the consolidated statement of income as �Dividend income� when the right of

payment has been established. These financial assets are classified as noncurrent assets unless there is intention to dispose of such assets within 12 months of the balance sheet date. AFS investments in unquoted equity securities are carried at historical cost, net of impairment. As of September 30, 2010 and December 31, 2009, the Group�s AFS investments consist of investments in

unquoted redeemable preferred and common shares, and quoted common and golf shares.


Other financial liabilities This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings (e.g., payables, accruals). The financial liabilities are initially recognized at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. As of September 30, 2010 and December 31, 2009, the Group�s other financial liabilities include bank loans,

accounts payable and accrued liabilities, trust receipts payable, customers� deposits, long-term debts and obligations, including current maturities, and advances from related parties.

Derivatives and hedging

Derivative financial instruments (swaps and option contracts to economically hedge exposure to fluctuations in interest rates) are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Derivatives are accounted for as at FVPL, where any gains or losses arising from changes in fair value on derivatives are taken directly to consolidated statement of income for the year, unless the transaction is a designated and effective hedging instrument.

For the purpose of hedge accounting, hedges are classified as:

a. fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability; or

b. cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a forecast transaction; or

c. hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument�s

effectiveness in offsetting the exposure to changes in the hedged item�s fair value or cash flows attributable to

the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Fair value hedges Fair value hedges are hedges of the Group�s exposure to changes in the fair value of a recognized asset or

liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are recognized in the consolidated statement of income.


For fair value hedges relating to items carried at amortized cost, the adjustment to carrying value is amortized through the consolidated statement of income over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortized to the consolidated statement of income. Amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated statement of income. The changes in the fair value of the hedging instrument are also recognized in the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest method is used is amortized to the consolidated statement of income. Amortization may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. As of September 30, 2010 and December 31, 2009, the Group does not have designated fair value hedge. Cash flow hedges Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in the consolidated statement of comprehensive income, while the ineffective portion is recognized in the consolidated statement of income. Amounts taken to the consolidated statement of comprehensive income are transferred to the consolidated statement of income when the hedged transaction affects the consolidated statement of income, such as when hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to the consolidated statement of comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in the consolidated statement of comprehensive income are transferred to the consolidated statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in the consolidated statement of comprehensive income remain in the consolidated statement of comprehensive income until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to consolidated statement of income.

The Company has an interest rate swap that is used as hedge for the exposure change in the cash flows of its P=380.00 million fixed-rate loan in 2009. Impairment of Financial Assets

The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Loans and receivables The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Objective evidence includes observable data that comes to the attention of the Group about loss events such as but not limited to significant financial difficulty of the counterparty, a breach of contract, such as a default or delinquency in interest or


principal payments, probability that the borrower will enter bankruptcy or other financial reorganization. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as a difference between the asset�s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset�s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of loss is recognized in the consolidated statement of income. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in the group of financial assets with similar credit risk and characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. Loans and receivables, together with the related allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

In relation to receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced either directly or through the use of an allowance account. Impaired financial assets carried at amortized cost are derecognized when they are assessed as uncollectible either at a direct reduction of the carrying amount or through use of an allowance account when impairment has been previously recognized in the said amount.

AFS investments If an AFS investment is impaired, the cumulative loss that had been recognized in the other comprehensive income (resulting from decline in fair value) shall be recycled to profit and loss even though the investment has not been derecognized. The amount of the cumulative loss that is removed from the other comprehensive income and recognized in the profit and loss shall be the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income. In case of equity securities classified as AFS investments, objective evidence would include a significant or prolonged decline in the fair value of the financial assets below its cost or where other objective evidence of impairment exists. The determination of what is �significant� or �prolonged� requires judgment. The Group

treats �significant� generally as 30% or more of the original cost of investment, and �prolonged� as greater than


12 months. In addition, the Group evaluates other factors, including normal volatility in share price for unquoted equities.

Derecognition of Financial Assets and Financial Liabilities Financial Assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized where: the right to receive cash flows from the asset has expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them

in full without material delay to a third party under a �pass-through� arrangement; or the Group has transferred its right to receive cash flows from the asset and either (a) has transferred

substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group�s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group�s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

Embedded Derivatives An embedded derivative is separated from the host financial or non-financial contract and accounted for as a derivative if all of the following conditions are met:

the economic characteristics and risks of the embedded derivative are not closely related to the economic

characteristic of the host contract; a separate instrument with the same terms as the embedded derivative would meet the definition of a

derivative; and the hybrid or combined instrument is not recognized at FVPL.

The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes a party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

An entity determines whether a modification to the cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.


Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets at FVPL. Changes in fair values are included in the consolidated statement of income. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

As of March 31, 2010 and December 31, 2009, the Group does not have contracts identified as having embedded derivatives characteristics.

Financial Risk Management Objectives and Policies

The Group�s principal financial instruments include non-derivative instruments such as cash and cash equivalents, AFS investments, accounts receivable, receivable from Meralco, bank loans, accounts payable and accrued liabilities, trust receipts payable, customers� deposits, short-term and long-term debts and obligations, advances to and from related parties and other loans payable. The main purpose of these financial instruments includes raising funds for the Group�s operations and managing identified financial risks. The Group has various other financial assets and financial liabilities such as trade receivables, trust receipts payable, and customers� deposits which arise directly from its operations. The main risk arising from the use of financial instruments is credit risk, liquidity risk, interest rate risk, foreign exchange risk and equity price risk.

Credit risk Credit risk arises from the risk of counterparties defaulting. Management is tasked to minimize credit risk

through strict implementation of credit, treasury and financial policies. The Group deals only with reputable counterparties, financial institutions and customers. To the extent possible, the Group obtains collateral to secure sales of its products to customers. In addition, the Group transacts with financial institutions belonging to the top 25% of the industry, and/or those which provide the Group with long-term loans and/or short-term credit facilities.

The Group does not have significant concentrations of credit risk and does not enter into financial instruments

to manage credit risk. With respect to credit risk arising from financial assets other than installment contracts and accounts receivable (such as cash and cash equivalents and AFS investments), the Group's exposure to credit risk arises from default of the counterparties, with a maximum exposure equal to the carrying amount of these instruments.

Liquidity risk Liquidity risk arises from the possibility that the Group may encounter difficulties in raising fund to meet

commitments from financial instruments. Management is tasked to minimize liquidity risk through prudent financial planning and execution to meet the

funding requirements of the various operating divisions within the Group; through long-term and short-term debts obtained from financial institutions; through strict implementation of credit and collection policies, particularly in containing trade receivables; and through capital raising, including equity, as may be necessary. Presently, the Group has existing long-term debts that fund capital expenditures. Working capital requirements, on the other hand, are adequately addressed through short-term credit facilities from financial institutions. Trade receivables are kept within manageable levels.

Interest rate risk The Group�s exposure to changes in interest rates relates primarily to the Group�s short-term and long-term debt obligations.

Management is tasked to minimize interest rate risk through interest rate swaps and options, and having a mix of variable and fixed interest rates on its loans. Presently, the Group�s short-term and long-term debts are market-determined, with the long-term debts interest rates based on PDST-F-1 plus a certain spread.

To further reduce its interest rate risk exposure, the Group through the Parent Company entered into an interest rate swap agreement in 2009. The Parent Company utilizes PHP interest rate swap with a receive variable leg based on the benchmark interest rate of three-month PDST-F and pay fixed leg that it is the receive leg that virtually matches the loan�s critical terms. With this, the variability in cash flows of the interest rate swaps are expected to offset the variability in cashflows of the loan due to changes in the benchmark interest rate.


Therefore, the Parent Company concluded that no or little ineffectiveness will result (absent a default by the counterparty). Accordingly, mark-to-market adjustments on the interest rate swap are directly recognized in consolidated statement of comprehensive income. As more of the floating-rate loans were paid on scheduled repayment dates and the hedging transaction effectively converted the floating rate to fixed rate, the percentage of floating-rate debt represents 62.44% of total outstanding long-term debts as of June 30, 2010 and December 31, 2009. The Group has not entered into interest rate swaps and options prior to 2009.

Foreign exchange risk

The Group�s exposure to foreign exchange risk results from the Parent Company and URICI�s business transactions and financing agreements denominated in foreign currencies.

Management is tasked to minimize foreign exchange risk through the natural hedges arising from its export business and through external currency hedges. Presently, trade importations are immediately paid or converted into Philippine peso obligations as soon as these are negotiated with suppliers. The Group has not done any external currency hedges in 2010 and 2009.

Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value.

Due to the short-term nature of the transactions, the carrying amounts of cash and cash equivalents, accounts receivable, bank loans, accounts payable and accrued liabilities, trust receipts payable and customers� deposits

approximate their fair values. The fair value of quoted AFS investment has been determined by reference to quoted market prices at the close of business on September 30, 2010 and December 31, 2009. Investments in unquoted equity securities are carried at historical cost, net of impairment, as their fair value cannot be reliably measured. The fair value of advances to/from related parties, receivable from Meralco and long-term obligations are based on the discounted value of future cash flows using the applicable rates for similar types of instruments.

The carrying value of long-term debt, for which interest rates are repriced quarterly based on market rates,

approximates the fair value.

Fair Value Hierarchy The Group uses the following hierarchy for disclosing the fair values of financial instruments by valuation source of input:

quoted prices in active markets for identical assets or liabilities (Level 1); those involving inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and those with inputs for the asset or liability that are not based on observable market date (unobservable

inputs) (Level 3). 10. Other Income (Charges)

For the Period Ended September 30

2010 (Unaudited)


(amounts in millions) Interest expense (P=87) (P=119)Interest income 25 34Other income, net 28 43 (P=34) (P=42)


11. Earnings per Share (EPS)

For the Period Ended September 30

2010 (Unaudited) 2009 (Unaudited)

a. Net income attributable to equity holders of the Parent Company (Amounts in Millions) P=524 P=282

b. Common shares outstanding 3,160,403,866 3,160,403,866 c. Weighted average common shares

outstanding 3,160,403,866 3,160,403,866 d. Basic earnings per share (a/b) P=0.166 P=0.089 e. Diluted earnings per share (a/c) P=0.166 P=0.089



Aging Analysis of Trade Receivables As of September 30, 2010

(Amounts in Millions) Amount % Under Six (6) Months P=1,459 77% Six (6) Months to One (1) Year 257 14% Over One (1) Year 169 9% P=1,885 100%